BHGR Newsletter: New Ruling in Non-Compete Agreements with Employees

August 2009

Employers who have existing non-competition agreements with employees, or who are considering entering into such an agreement, should be aware of a recent Colorado case that clarifies an important aspect of the enforceability of non-competition agreements.

As employers know, Colorado law casts many obstacles to enforcement of agreements in which employees agree not to compete against their employers if the employment relationship is terminated. The Colorado Court of Appeals recently added another potential pitfall in the case of Lucht’s Concrete Pumping v. Horner, Case No. 08CA0936, on June 11, 2009.

Lucht’s addresses what is adequate “consideration” to create a binding non-competition agreement. “Consideration,” which is a basic and necessary element of every enforceable contract, means an act, forbearance, or return promise that each party to a contract bargains for and receives by virtue of the contract.

Prior to Lucht’s, there was an open question in Colorado whether continued employment of an at-will employee after the execution of a non-compete agreement was a sufficient benefit or “consideration” to the employee to make the agreement enforceable. Lucht’s resolved this question in the negative when it found that an employer must give its at-will employees something more than continued employment in exchange for the employee’s agreement not to compete.

The employee in Lucht’s was a regional manager for a concrete pumping company who was two years into his employment when he was asked to sign, and did sign, an agreement not to compete with the company if his employment was terminated. A year later, the manager resigned and began working for a competitor. The concrete pumping company sued to enforce the non-competition agreement. The court found that the agreement was not enforceable because the company did not give the manager anything of value in exchange for his agreement not to compete. The company argued that it gave the manager something of value by continuing to employ him, but the court disagreed. The court reasoned that because the manager was an at-will employee who could be terminated at any time, he was not gaining anything of value by his continued employment. The court found that for the non-compete agreement to be enforceable, the company had to give the manager something more than continued at-will employment. Examples of sufficient consideration are a pay increase, a promotion, or additional benefits.

In view of the Lucht’s decision, employers with existing non-competition agreements should consider if they have given adequate consideration to their employees in exchange for the employees’ execution of non-compete agreements.

Our employment law attorneys have significant experience and expertise in advising and litigating the enforcement of non-compete agreements, and can assist you with any questions or concerns you may have about them.

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